Most people (understandably) want to pay as little tax as possible – and that includes those from overseas who invest in property in the UK. But, living abroad you may not be as familiar as you should be with UK tax laws (don’t worry, you’re not the only one – even UK property investors sometimes lose out by misinterpreting them). In this article, we will explain some of the best and legitimate ways to reduce your tax bill on property profits, when it comes to telling all to the tax man. Read on…you may be very pleasantly surprised about how simple it can be:
1. Use an ISA
Every UK tax payer is entitled to a tax-free ISA allowance of up to £20,000 per annum. By investing any profit from your buy to let or other property investment business into an ISA saving account (whether cash or stocks and shares), you won’t have to pay tax on this first initial profit from property.
2. Multiply any Capital Gains Allowance
When you sell a property in the UK and make a profit on it, you have to pay what is referred to as Capital Gains Tax. At the moment, you don’t have to pay tax on the first £12,000. If the property is owned jointly between you and your married or civil partner, then the tax-free threshold doubles to £24,000. In other words, you can combine them.
3. Remember to include self-employed expenses
You can claim back the cost of everyday expenses for your property business by offsetting it against tax. The type of things you can claim for include a proportion of the heating and lighting for your home (if that’s where you work from). You could also claim for insuring your home, water rates, cleaning and general maintenance – again, on a proportional basis.
Other eligible expenses include car, train (i.e. travel) costs – petrol is claimed in the form of business mileage – and having to fork out cash for overnight stays when it’s all been about business. Some breakfast and supper costs can also be claimed, provided that once again, it’s been for an overnight trip.
4. Carry forward losses
Not everyone makes a profit in their first year of business; few do, in fact. If that’s you, then you can carry forward that loss to the following year and offset it against tax, as you would a tax expense. It makes the pain of the loss that year a little less intense knowing you can ultimately benefit from it. Alternatively, you can use the loss immediately in the same tax year. That way, you could reduce both income tax and any potential capital gains tax costs.
5. Landlord replacement – domestic items in buy to let properties
If you have to replace items such as white goods, a sofa, chairs, carpets or broken crockery in your rented apartment or house, then it’s possible to claim back the costs for doing so. It’s important to note though, that you can’t claim additional costs for upgrading them i.e. the expenses claim must be on a ‘like for like’ basis.